economic and commercial laws · claiming under such document may present such document , in...

ECONOMIC AND COMMERCIAL LAWS

PART - B

1. Law relating to registration of documents

2. Law relating to socities registration

3. Law relating to trust

4. Industrial(development and regulation)act-1951

CS EXECUTIVE

CS HIMANSHU SRIVASTVA

RaJNISH PaNDEY PagE 2

CHAPTER - ONE

REGISTRATION OF DOCUMENTS ACT 1908

INTRODUCTION

Registration act – 1908 provides for registration of certain documents. Following are the purpose or

objective of registration of documents.

1. To give notice to the world that such a document has been registered and to serve as a source of

information regarding the execution of the document and its existence;

2. To prevent fraud and forgery with the purpose of providing good evidence of the genuineness of

the written document ; and

3. To secure the interest of the person dealing with any immovable property where such dealing

requires registration.

DOCUMENTS FOR WHICH REGISTRATION IS COMPULSORY AND OPTIONAL

[SECTION 17 & 18]

FOR WHICH REGISTRATION IS COMPULSORY

(SECTION 17)

FOR WHICH REGISTRATION IS

OPTIONAL (SECTION 18 )

1. Instrument of gift of immovable property

which value exceeds rupees 100 = must be

registered.

2. Transfer of any non- testamentary

instrument of value exceeding rupees 100

must be registered.

3. Any consideration for transfer of non-

testamentary instrument of value

exceeding rupees 100 must be registered.

4. Any court order, decree ,judgement

regarding any immovable property of

value exceeding rupees 100 must be

registered.

5. In case of lease if lease period is more than

1 year , then it must be registered.

1. If any immovable property is less than

rupees 100 then it is optional to be

registered.

2. Transfer of any non-testamentary

instrument of value less than rupees 100

then it is optional to be registered.

3. Any consideration for transfer of non-

testamentary instrument is if less than 100

rupees then it is also optional for

registration.

4. Any court order , decree , judgement

regarding any immovable property of value

less than 100 , then it is also optional for

registration .

5. In case of lease if lease – period is less than

1 year , then it is also optional for

registration .

6. There is no need of registration of will.


PROVISIONS FOR REGISTRATION

PLACE OF REGISTRATION –

Where the immovable property situates i.e. in which area the property situated it must be registered by

sub-registrar of that area. [section 28]

Section 29 provides that documents pertaining to any property other than immovable property may be

presented for registration in the office of Sub-Registrar in whose sub-district the document was executed.

TIME LIMIT – [SECTION 23,24,25 AND 27]

The non – testamentary instrument of immovable property should be registered within 4 months from the

date of execution.

There is no time-limit for registration of will.

DOCUMENTS EXECUTED OUTSIDE INDIA [SECTION 26]

AS per section 26, where the registrar is satisfied that the document was executed outside India and it has

been presented for registration within 4 months after its arrival in India, he may accept such document for

registration on payment of proper registration fees.

A document executed outside India and which requires compulsory registration , is not valid unless it is

registered.

PRESENTATION FOR REGISTRATION –

The non – testamentary instrument should be presented before Sub-Registrar for registration .

WHO CAN PRESENT –[SECTION 32]

Any document to be registered under this Act , whether such registration is optional or compulsory , shall

be presented before the Sub – Registrar by any of the following persons-

1. Some person executing or claiming under the document.

2. The representative or assign of such person.

3. The agent of the aforesaid person , duly authorised by special power of attorney.

It is immaterial whether the registration is compulsory or optional; but if it is presented for registration by

a person other than a party not mentioned in section 32, such presentation is wholly inoperative and the

registration of such a document is void.

RE-REGISTRATION OF CERTAIN DOCUMENTS [SECTION 23A]

Sometimes , a document requiring registration may be accepted for registration by Registration from a

person not duly empowered to present the same and may be registered , in such a case , any person

claiming under such document may present such document , in accordance with the provisions of the

Registration Act , for registration in the office of the Registrar of district in which the document was

originally registered . He can ,however ,do so within 4 months from his first becoming aware of such

document is invalid.


When such a document is presented for re-registration , the Registrar shall register the same as if it has not

been previously registered . The document , if duly re-registered in accordance with the provisions of

Section 23 a , shall be deemed to have been duly registered for all purpose from the date of its original

registration.

EFFECT OF REGISTRATION OF DOCUMENTS [SECTION 47 & 48]

A registered document operates from the time from which it was intended to operate and not from the

date of registration. [SECTION 47]

As b/w two registered documents, the date of execution determines the priority. Of the two registered

documents ,executed by same persons in respect of the same property to two different persons at two

different times, the one which is executed first gets priority over the other , although the former deed is

registered subsequently to the later one.

A non-testamentary registered document, relating to property, takes effect against any oral agreement

relating to such property . However, when the oral agreement is accompanied by delivery of possession,

then the oral agreement will prevail the registered document.[section 48]

EFFECT OF NON-REGISTRETION OF DOCUMENT [section 49]

A document which is compulsorily registrable but is not registered , fails to take effect and is void as

regards immovable property, it cannot effect any immovable property comprised therein . Further it

cannot confer any power to adopt.

An unregistered document cannot be received as evidence of any transaction effecting such property or

conferring such power. However such a document may be received as evidence of :

1. A contract in a suit for specific performance ; or

2. Part performance of a contract as per section 53 A of Transfer Of Property Act .

REFUSAL BY REGISTRAR TO REGISTER DOCUMENTS [SECTIONS 71-75]

1.REFUSAL FOR REGISTRATION TO REGISTER THE DOCUMENT TO BE RECORDED [SECTION 71]

Every Sub-Registrar refusing to register the document , except on the ground that the property to which

the document relates is not situated within its sub-district, shall make an order of refused and shall record

the reasons for such order.

It may be noted that under-valuation of stamp duty is not a valid ground for refusing the registration of a

document. In such a case , the Sub-Registrar can guide the person to affix proper stamps before he can

register the documents presented. If the sub-registrar is doubtful as to the proper value of stamps affixed,

he can refer the case to the Collector of Stamps to be adjudicated.

2.APPEAL TO REGISTRAR FROM ORDERS OF SUB-REGISTRAR REFUSING REGISTRATION ON

GROUND OTHER THAN DENIAL OF EXECUTION OF DOCUMENT [SECTION 72]

An appeal shall lie, against order of Sub-Registrar refusing to register a document, to the Registrar to

whom such Sub-Registrar is subordinate. However, the appeal shall not lie where the refusal is made on

the ground of denial of execution of a document. The appeal can be presented to the Registrar within 30

days from the date of the order of Sub-Registrar.

If the registrar directs the documents to be registered and the document is duly presented for registration

within 30 days after the making of such order, the Sub-Registrar shall register the same.


Such registration shall take effect as if the document has been registered when it was first duty presented

for registration

APPEAL TO REGISTRAR WHEN SUB-REGISTRAR REFUSED TO REGISTER THE DOCUMENTS ON THE

GROUND OF DENIAL EXECUTION [SECTION 73,74&75]

Where the Sub-Registrar has refused to register a document on the ground of denial of execution, then any

person claiming under such document may, within 30 days after the making of the order of refusal, apply

to the registrar to whom such sub-registrar is subordinate in order to establish his right to have the

document registered.

Where such an appeal is made to the Registrar, then he shall enquire to find out whether the document

has been really executed or not. If the registrar finds that the document has been executed, he shall order

the document to be registered. If the document is duly presented for registration within 30 days after the

making of such order, the Sub-Registrar shall register the same.

Such registration shall take effect as if the document has been registered when it was first duly presented

for registration.

POWERS AND DUTY OF REGISTRAR –

The main work or duty of registrar is to maintain books in registered office.

Book 1- The register related to non-testamentary instrument.

Book 2- To maintain the reasons for non-registration.

Book 3- To maintain register related to testamentary instrument or will.

Book 4- To maintain miscellaneous registers.

Book 5- To maintain registers related to deposits.

NOTE –

1. If the sub-registrar refuses the registration of documents then-book 2

2. The appellate party must be file suite against the sub-registrar under registrar within 30 days from

the date of decision given by sub-registrar.

LAW RELATING TO REGISTRATION OF GIFT DEED -

If the donor dies before registration of the gift deed, the gift deed may be presented for registration after

his death and if registered, it will have the same effect as registration in his life time.

Delay in registration of a gift does not postpone its operation, section 123 of the Transfer Of Property Act

1882 merely requires that donor should have sighed the deed of gift. Hence a gift deed can be registered

even if the donor does not agree to its registration.


CHAPTER - TWO

SOCIETIES REGISTRATION ACT - 1860

INTRODUCTION-

The purpose of societies registration act -1860 is to provide for the registration and administration of

literary, scientific and charitable trust.

It is a non-profit organization . it get deduction under 80G in income tax act. It is a legal entity having

perpetual succession but not a body corporate .It has capacity to sue and be sued. Registration of society

is mandatory. It is created for own benefit of society not for any third party. A foreigner is also allowed

as a society member. There is an election held in society for the governing body.

There should be minimum 7 persons to create a society. There is not any limit regarding to the maximum

members in a society .

PROCEDURE FOR REGISTRATION OF SOCIETY (section 1 to 3 and section 23)

Any 7 or more persons associated for any literary , scientific , or charitable purpose or any other purpose

as specified in section20 of the act may from themselves into a society under the societies registration

Act . They can do so by subscribing their names to the Memorandum of association and filling the same

with the registrar of joint stock companies

The memorandum of association shall state the following ;

A) The name of the society.

B) The object of the society.

C) The name ,address ,occupation of the Governors ,council ,Directors and other governing bodies , to

whom the management of the affairs of society is entrusted.

Along with the memorandum, the following documents are required to be filed with the registrar:

a) A copy of rules and regulations of the society correct by not less than 3 members of the governing

body; and

b) The prescribed fee

When the registrar is satisfied that the society has compiled with the statutory requirements as to

registration , he issues an acknowledgement in the form of a certificate of registration .

WORKING OF SOCITIES –

There should be minimum 3 members in governing body . Members elected or nominated as per the

rules and regulations of societies . The term is 3 years and member can enjoy his term to 2 times.

However , the term , retirement , expulsion are governed by rules and regulation .

DUTIES OF SOCIETY

These are the duties or liabilities of society

1) To hold A G M.

2) A meeting in the month of January every year.

3) To repast changes and alternation .


4) To register amendments in MOA or bylaws.

5) A list of name , address , occupation , of the government councillor , directors committee is to be

filed with the registrar once in a year.

6) To file the notice of situation of the registered office of the society must be informed to registrar.

7) To prepare receipt / income and expenditure account , balance sheet or with prescribed fees for

registration.

8) To display the name of society at the registered office.

9) To maintain the minutes of a meeting .

10) To prepare accounts and conduct audit and file income tax returns.

11) To file a certified copy of every special resolution.

12) To held extra ordinary general meeting .

13) To maintain a register of members of society in accordance with rules and regulations.

ALTERATION OF THE OBJECTS OF SOCITIES –

Section 12

Provides for the alteration of the purpose or objects for which the society is formed, with a view to alter

, extent or abridge them within the meaning and scope of the act . the procedure for alteration of object

is as follows ;

The governing body of the society has to submit the proposition to the members of the society , for

which a meeting of the members shall be convened , by issuing a written or printed report . the report

shall be delivered or sent by post to every member of society ,at least 10 days before the meeting . the

member present at such meeting must agree to the proposition by 3/5TH of the votes delivered in person

or by proxy out of the members present at the meeting and confirmed by votes of 3/5TH of members

present at the second meeting convened by the governing body at an interval of one month after the

former meeting.

MEMBERS-

A member is a person who is admitted to the society according to the rules and regulations thereof and

who has paid the subscription and signed the Roll/ list of members and has not resigned according to the

rules and regulations . but a person shall not be counted as a member and shall not be entitled to vote if

a subscription money is in arrears for a period exceeding 3 months.

AMALGMATION OR DEVISION OF SOCIETY –

If governing body wants to amalgamate or divide his society then the same procedure will be followed

as in alteration of object of societies.

LIABILITIES OF MEMBERS –

According to section 10 of the act , a member is liable to be sued as stranger in the following cases-

a) When he is in arrears of the subscription;

b) When he has detained any property of the society;

c) When he has destroyed any property of the society.


In abovementioned cases , he may be sued for arrears or for the damages , but he can recover the cost if

he is successful in any suit or proceeding against him.

Members guilty of offences are punishable as strangers under section 11 of the societies registration act

. section 11 provides that a member may be prosecuted and punished in following cases;

1. If he steals , embezzles any money or other property of the society.

2. If he forges any deed, document, etc. Because of which society suffers some loss .

3. If he wilfully and maliciously destroys the property of the society.

DISSOLUTION OF SOCIETY- A society can be dissolved –

1. Whenever the object of society is fulfilled.

2. If the purpose of society becomes invalid , irrelevant ,inoperative .

3. Passing of resolution by 3/5TH consent of all members present at the meeting to dissolve the society.

SUITS =

A society registered under societies registration act is a legal entity. It can sue and can be sued in the

name of chairman , president or principal secretary of societies.

If there is no law , then person authorised by the general body may sue on behalf of society. [section 6]

Section 7 provides that the death or retirement from office, of a plaintive pr defendant , shall not affect

the civil preceding , brought by or against the society. The proceedings will continue in the name of the

successor of such person.

NOTE-

1. Any arrear of subscription amount for a period of exceeding 3 months then shall not be counted as a

member of the society and does not having right to vote.


CHAPTER – THREE

LAW RELATING TO TRUSTS

DEFINITION AND MEANING OF TRUST = A trust is an obligation annexed to the ownership of property

and arising out of a confidence reposed in and accepted by the owner (trustee),or declared and accepted

by him, for the benefit of another, oranother and the actual owner.[SECTION 3]

ELEMENTS OF TRUST

1.The person who reposes or declares the confidence is called the author of trust or settler.

2.The person who accepts the confidence is called the trustee.

3.The person for whose benefit the confidence is accepted is called the beneficiary.

4.The subject-matter of trust is called the trust-property or the trust-money.

5.The object of trust should be legal.

6.There may be a instrument of trust (i.e. trust deed)

7.There may be terms and condition written in trust deed

NOTE

1.Tax exemption made available to trust 80G deduction of income tax act

2.It is a separate legal entity

3.Not for profit organization

4.Value of property should exceed Rs 100.

5.Author of trust or trustee should be competent to contract.

PURPOSE OR OBJECT OF TRUST [SECTION 4]

Section 4 provides that a trust can be created only for lawful purpose. the purpose of trust is lawful

unless:

A) It is forbidden by law;

B) It is of such nature that ,if permitted ,it would defect the provision of any law;

C) It is fraudulent ;

D) It involves or implies injury to the person or property of another;

E) The court regards it is immoral or opposed to public policy.

Every trust of which the purpose is unlawful is void. Where a trust has been created for two purposes ,of

which one is lawful and another unlawful and the two purpose are such that they can`t be separated, the

whole trust is void. [ Chogal Bhandari Vs Deputy Commercial Tax Officer]

CLASSIFICATION OF TRUST

SIMPLE TRUST – A trustee to hold estate without having any active duties to perform.

SPECIAL TRUST- The trust has been created for a particular object/purpose is a special trust.

ORAL TRUST- A trust may be declared orally.

WRITTEN TRUST- A trust may be declare on written basis or through an instrument in writing.

EXPRESS TRUST- Either orally or written ,the trust is created.


IMPLIED TRUST- The parties are not give any intention , it means intention shall not be express.

REVOCABLE TRUST- The power goes to settler or author to revoke the trust anytime.

IREVOCABLE TRUST- It is one of that which will not come to end until the terms and conditions of trust

have been fulfilled.

CONSTRUCTIVE TRUST- Imposed by law and as on equitable remedy it occurs due to some wrong doing

,where the wrong doers have achieved legal title to some properties and can not in good consent they

allow to benefit from it.

CERTAINTIES OF A TRUST [SECTION 6]

SECTION 6 provides that for a trust to be validly created ,following four things are necessary;

1.CERTAINTY AS TO INTENTION= law looks at the internal rather than at the form. Therefore ,no special

form of words is necessary for the creation of valid trust. The intention to create a trust must be indicated

by words or acts with reasonable certainty.

2.CERTAINTY AS TO PURPOSE= Indefiniteness or uncertainty in relation to the purpose or object of a trust

may render the entire trust void. The object of the trust must be expressly defined.

3.CERTAINTY AS TO TRUST PROPERTY- there must be reasonable certainty about the subject matter i.e.

,trust property ,of the trust.

4.CERTAINTY AS TO BENEFICIARY- For constitution of trust ,beneficiaries must be indicated with

reasonable certainty ,otherwise the trust would be void for uncertainty.

DUTIES OF TRUSEE

1) Trustee is not bound to accept the trust. However once accepted ,he can’t renounce it except with

the prior permission of civil court or beneficiary if he is a major or by virtue of special power in the

instrument of trust.

2) Once the trustee accepts the trust, he is bound to fulfil the purpose of trust and to obey the

directions given at the time of creation of trust.

3) To protect title to trust property.

4) Not to setup title adverse to beneficiary.

5) To take such care of the trust property as a man of ordinary prudence would take of his own

property.

6) To convert perishable property to permanent and immediately profitable character.

7) To be impartial

8) To prevent wastage of the trust property.

9) To keep proper accounts and information of the trust property.

RIGHTS AND POWERS OF TRUSTEE

1) Right to title deed.

2) Right to re-imbursement of expenses.

3) Right to apply to court for opinion on management of trust property.

4) Right to settlement of accounts.


5) Right to do all acts which are necessary ,reasonable and proper for trust property or protection

of beneficiary.

6) Power to convey a property, when he is authorized to sell.

7) Power to vary investment from one security to another.

8) Power to give receipts.

9) Power to compound or compromise.

Power to apply trust property for the maintenance of beneficiary ,if the beneficiary is a minor.

RIGHTS OF BENEFICIARY

1. Right to rents and profit of the trust property.

2. Right to specific execution of the trust.

3. Right to inspect and take copies of the trust account.

4. Right to transfer the beneficial interest, if he is competent to contract.

5. Right to sue for execution of trust.

6. Right to proper trustees.

7. Right to follow the trust property which has gone into the hands of a third person.

LIABILITIES OF BENEFICIARY

IF A beneficiary commits a breach of trust or obtains any advantage there from or becomes aware of a

breach of trust committed or deceived the trustee ,the other beneficiary are entitled to have his beneficial

interest impounded against him ,until the loss ,caused by the breach has been compensated.

EXTINCTION OF TRUST [ SECTION 77]

A trust is extinguished when;

1) The purpose is completely fulfilled;

2) The trust ,being revocable, is expressly revoked;

3) Its purpose becomes unlawful or the fulfilment of its purpose becomes impossible because of

destruction of the trust property.

REVOCATION OF TRUST

A trust created by will can be revoked at the pleasure of trustee.

A trust created otherwise can be revoked only:

a) By the consent of all the beneficiaries ,if they are competent to contract.

b) In exercise of a power of revocation expressly reserved by the author of the trust, if the trust has

been created either by a non-testamentary instrument or by words of mouth.

c) At the pleasure of the author of the trust ,if the trust is for the payment of the debts of the author

of the trust and has not been communicated to the creditors.

It may be noted that sub clause (c) applies only to a trust solely for the payments of debts and not to a

trust –deed created for the payment of debts and other purposes.


DOCTRINE OF CY PRES

Cy pres means near to it. The doctrine of cy pres applies only to charitable trust.

Doctrine of cy pres provides the following-

“ where a clear charitable intention is expressed, it will not be permitted to fail because the mode, if

specified ,can’t be executed but the law will substitute another mode cy pres ,i.e. ,as near as possible to

the mode specified by the donor”.

‘’The doctrine of cy pres applies where a charitable trust is initially possible but later becomes impossible.

In such cases, the court may apply the property cy pres i.e. ,to some other charities as near as possible

,resembling the original trust.’’

TRUSTS NOT ALLOWED TO SET OFF THE PROFIT AND LOSSES

SECTION 24 provides that a trustee who is liable for a loss caused by his negligence in respect of one

portion of the trust property ,can`t set off against his liability a gain or profit which has occurred in respect

of another portion of trust property. However ,where loss and gain arise out of a same transaction ,the

trustee may be allowed to set off.

TRUSTS BAILMENT

1.TRUSTEE is the full owner of property. 2.Trustee is equitable. 3.Both movable or immovable property can be created.

1.BAILY acquire specific property. 2.Obligation is legal. 3.Bailment may be created only for movable property.

TRUSTS AGENCY

1.TRUSTEE is full owner of trust. 2.A trustee acts on his own rights. 3.A trustee is personally liable.

1.An agent has no title to property. 2.An agent acts on behalf of principal. 3.An agent is not personally liable.

PUBLIC TRUSTS PRIVATE TRUST

ANY TRUST CREATED NOT FOR ANY PERTICULAR OR INDIVIDUAL IS KNOWN AS PUBLIC TRUST

IF TRUST IS CREATED FOR ANY PERTICULAR,INDIVIDUAL OR GROUP OF INVESTOR IS KNOWN AS PRIVATE TRUST

TESTAMENTRY INSTUMENT /TRUST NON-TESTAMENTORY INSTRUMENT

/TRUST

NO NEED TO BE REGISTERED i.e. WILL IT MUST BE REGISTERED


CHAPTER – FOUR

INDUSTRIAL(DEVELOPMENT AND REGULATION)ACT-1951

INTRODUCTION

Industries ( development and regulations ) act,1951 , being one of the economic laws provides a platform

to the Government to implement its industrial policy , one of the aspects of the economic policy. Presently,

New Industrial Policy , 1991 which come into existence on 24TH July 1991 is being implemented through

the aforesaid Act,IRDA,1951 came into effect from 8TH may 1952.

OBJECT AND SCOPE OF IRDA

The preamble to the act states that the IRDA is an act to provide for the development and regulation of

certain industries. These industries are specified in first schedule to the act. The scope of the act is

therefore limited to the industries mentioned in the first schedule known as ‘scheduled industries’.

ADMINISTRATION OF THE ACT

The principle authority for administration of the Act is Ministry of Commerce And Industry. Under the said

ministry, there is a department called department of industrial policy and promotion to which a secretarial

of industrial assistance (SIA) is attached.

SCHEME OF THE ACT

The act can be divided into three parts :-

Provisions dealing with development aspects through the central advisory council & development

council

Provisions dealing with regulatory aspects of scheduled industries through registration and license

Provisions dealing with control over scheduled industries through the investigation.

Development of the scheduled industries is sought to be secured through the agencies of central advisory

council and development council and also to be done by means of a system of Registration and Licensing.

Control over these industries is sought to be exercised by causing investigation into the working of these

industries and in appropriate cases taking over of direct management and control.

OBJECTIVE OF INDUSTRIAL POLICY

To maintain a sustained growth in productivity.

To enhance gainful employment.

To achieve optimum utilisation of human resources.

To attain international competitiveness.

To transform India into a major partner and player in the global arena.

IMPORTANT DEFINITIONS [SECTION 3]

Existing industrial undertaking [section 3(bb)]

Existing industrial undertaking means:-


An industrial undertaking which was in existence at the time of commencement of this act and

which belongs to any of the industries listed in first schedule ( as originally enacted at the time of

commencement of this act ).

An industrial undertaking for the establishment of which effective steps were taken before the

commencement of the act and which belongs to any of the industries listed in schedule first .

An industrial undertaking which belongs to any of the industries added to the first schedule by an

amendment act and for which was in existence at the time of coming into force of such

amendment.

An industrial undertaking which belongs to any of the industries added to the first schedule by an

amendment act and for the establishment of which effective steps were taken before the coming

into force of such amendment .

Here effective steps means one or more of the following :-

That 60% or more of the capital issued by a public company has been paid up;

That a substantial part of the factory building has been constructed;

That a firm order has been placed for a substantial part of the plant and machinery required for the

undertaking.

FACTORY [ SECTION 3(c)]

Factory means any premises including the precincts thereof in any part of which a manufacturing process is

being carried on ---

With the aid of power provided that 50 or more workers were working thereon any day of the

preceding 12 months; or

Without the aid of power provided that 100 or more workers are working or were working thereon

any day of the preceding 12 months.

INDUSTRIAL UNDERTAKING [Sec. 3(d)]

It means an industrial undertaking pertaining to a scheduled industry carried on in one or more

factories by any person or authority including the Government.

New article [ Sec.3(dd)]

In relation to an industrial undertaking which is registered or in respect of which a licence or

permission has been issued under this Act, ‘New article’ means—

Any article which falls under an item in the first schedule other than the item under which

articles ordinarily manufactured or produced in the industrial undertaking at the date of

registration or issue of the licence or permission, as the case may be, fall;

Any articles which bears a mark as define in the Trade Mark Act, 1940 or which is the

subject of a portent. If at the date of registration or issue of the licence or permission, as the

case may be, the industrial undertaking was manufacturing or producing such article bearing

that mark or which is the subject of that patent, the article not fall in the category of ‘New

article’.


Owner [Sec. 3 (f)]

In relation to an industrial undertaking, ‘owner’ means the person, who, or the authority which has

the ultimate control over the affairs of the undertaking, where the said affair are entrusted to a

manager or managing director, such manager or managing director shall be deemed to be the owner

of the undertaking.

Scheduled Industry [Sec. 3 (i)]

It means any of the industries specified in the first schedule. The first schedule to the Act includes

38 industries engaged in the manufacture or production of any of the

articles mentioned under each of the headings or sub-heading given in the schedule.

DEVELOPMENT OF SCHEDULED INDUSTRIES

CENTRAL ADVISORY COUNCIL [sec.5]

The Central Government may, by notified order, establish a council to be called the Central

Advisory Council. It shall consist of a chairman and such other members not exceeding 30 in

number, all of whom shall be appointed by the Central Government. The members so appointed

shall represent the interest of –

Owners;

Employees;

Consumers;

Such other class of persons including primary producers, as in the opinion of the C.G. ought

to be represented on the advisory council.

The term of office and the procedure to be followed in the discharge of their function and the

manner of filling casual vacancies among members of the advisory council shall be such as may be

prescribed.

The function of Central Advisory Council is to advice the central government on matters

concerning the development and regulation of scheduled industries. The Central Government shall

consult the Advisory Council in regard to ---

The making of any rules,

Any other matter connected with the administration of the Act.

DEVELOPMENT COUNCIL [ SEC.6]

The Central Government may, by notified order, establish for any scheduled industry or group of

scheduled industries a body of persons to be called a Development Council. It shall consist of

members who, in the opinion of the Central Government, are:

Persons capable of representing the interests of owners;

Persons having special knowledge of matter relating to the technical or other aspects;


Persons capable of representing the interests of employees;

Persons capable of representing the interests of consumers.

The number and the term of office of, and the procedure to be followed in the discharge of their

functions by, and the manner of filling casual vacancies among members of a Development

Council, shall be such as may be prescribed.

The Central Government may assign to a Development Council, any of the functions specified in

the second schedule. Following are some of the important functions of a development council:

Recommending target for production.

Suggesting norms for improving quality and reducing costs.

Undertaking scientific industrial research.

Promoting standardization of products.

Promoting the training of persons engaged.

Promoting standardization of accounting method.

REGULATION OF SCHEDULED INDUSTRIES

REGISTRATION OF EXESTING INDUSTRIAL UNDERTAKING [Sec.10]

Sec. 10 provides that the owner of every industrial undertaking other than the Central

Government shall get his undertaking registered within a specified period. The industrial

undertaking of which the Central Government is the owner. On registration, the owner shall be

issued a certificate of registration containing the production capacity of the industrial undertaking

and other particulars. In specifying the production capacity in the certificate of registration the

Central Government takes into consideration the following factors:

(i) The productive or installed capacity as specified in the application.

(ii) The level of production immediately before the date on which the application for registration

was made;

(iii) The level of the biggest annual production during the three years immediately preceding the

introduction of an Amendment Bill to this Act in 1973;

(iv) The extent to which production during the said period was used for export; and

(v) Such other factors as may be considered relevant, including the extent of underutilisation of

capacity, if any.

(v) The owner of an industrial undertaking, which is registrable but has not been registered, is liable

to be punished with imprisonment up to 6 months or fine, which may extend to Rs. 5000/-or with

both.

INDUSTRIAL LICENSE

An industrial license is a written permission from the Central Government to an industrial

undertaking to manufacture specified articles listed in First schedule. The prescribed form for

industrial license is Form F to the registration and licensing of industrial undertaking rules,1952. An


industrial license shall contain particulars of the industrial undertaking, its location, articles to be

manufactured, the capacity on the basis of maximum utilization of plant and machinery, etc.

CASES WHERE INDUSTRIAL LICENSE IS REQUIRED

An industrial license is required in following cases;

Licensing for establishing new industrial undertaking [ Sec.11]: No person or authority,

other than Central Government, shall establish any new industrial undertaking without a

licence from the Central Government. Where a State Government wants to do so, previous

permission of the Central Government will be required.

Licence for producing or manufacturing article[Sec.11A] : The term ‘new article’has

been defined under section 3(dd) of this Act. As per this Act new article means—

Any article which falls under an item in First schedule other than the item under

which articles ordinarily manufactured or produced in the industrial undertaking at the

date of registration or issue of the licence or permission, as the case may be, fall;

Any article which bears a mark as defined in the Trademarks Act,1999 or which is

subject of a patent, if at the date of registration or issue of licence or permission, as the

case may be, the industrial undertaking was not manufacturing or producing such

article bearing that mark or which is the subject of that patent,

Licence for carrying on business without registration[Sec.13(1)(a)] : No person other

than the Central Government, shall carry on business after the lapse of time in which

registration should have been obtained, without obtaining a licence from the Central

Government. Where a State Government wants to do so, previous permission of the Central

Government will be required.

Licence for carrying on business after the revocation of certificate of registration [

Sec.13(1)(b)] : No person, other than the Central Government, shall carry on business after

the revocation of Certificate of registration, without obtaining a licence from the Central

Government. Where a State Government wants to do so, previous permission of the Central

Government will be required.

Licence for carrying on business by an industrial undertaking to which the Act became

subsequently applicable[ Sec. 13(1) ( c)]: If the IDRA,1951 becomes applicable to an

industrial undertaking, which was earlier exempted, then the owner of such industrial

undertaking must obtain a licence from the Central Government within a period of 3 months

from the date of Act becomes applicable in order to carry on its business. This is known as

COB licence, where the owner of the industrial undertaking is State Government, the

previous permission of the Central Government will be required.

Further COB licence is also required when a small scale unit exceeds the prescribed limit

[1crore] of investment in plant and machinery by way of natural growth and continues to

manufacture small scale reserved item.


Licence for effecting substantial expansion [ Sec.13(1)(d)] : “Substantial

expansion”means the expansion of an existing industrial undertaking which substantially

increases the productive capacity of the undertaking, or which is of such a nature as to

amount virtually to a new industrial undertaking; but does not include any such expansion as

is normal to the undertaking having regard to its nature and circumstances relating to such

expansion.

It may be noted that industrial undertaking can increase production of articles for which they

were licensed or registered, up to 25% of the capacity so licensed or registered, without

obtaining a substantial expansion licence, subject to the fulfilment of following conditions:

No additional plant and machinery is installed except minor balancing equipment

procured indigenously:

No additional expenditure of foreign exchange is involved: And

The extra production does not occasion any additional demand for scare raw material.

Licence for change in Location[Sec.13(1)(e)]: No person or authority, other than Central

Government, shall change the location of its industrial undertaking without a licence from

the Central Government. In case any State Government wants to do so, previous permission

of the Central Government will be required.

CONTROL OVER SCHEDULED INDUSTREIS

INVESTIGATION

Investigation into Industries/ Industrial Undertakings [ Sec.15]

Sec. 15 empowers the Central Government to make an investigation into an industrial undertaking

or scheduled industries.

Under this section, the Central Government to make an complete investigation into any scheduled

industry or industrial undertaking if it is satisfied that in respect of that scheduled industry or

industrial undertaking :

There has been or is likely to be a substantial fall in the volume of production;

There has been or likely to be a marked deterioration in the quality of articles;

There has been or likely to be, an undue rise in the price of articles; or

It is necessary to take any such action for the purpose of conserving any resourcs of national

importance.

Secondly, such investigation is also possible when the Central Government is satisfied that the

industrial undertaking is being managed in a manner highly detrimental to the scheduled industry or

to public interest.

Investigation into affairs of a Company in liquidation [ Sec.15A]

Section 15A contains provisions for conducting an investigation into the affairs of a company

owning an industrial undertaking.

The pre-requisites for conducting such an investigation are:


The company is either being wound up by or under the supervision of a High Court:

The business of such company is not being continued:

The Central Government must be satisfied that it is necessary in the interests of general

public and in particular in the interests of production, supply or distribution of articles, to

investigate into the possibility of running or re-starting the Industrial Undertaking.

If the above mentioned conditions are satisfied. The Central Government may make an application

to the High Court for investigation. On such application, High Court shall grant the permission for

investigation.

In Union Of India v. Anglo French Textiles Ltd., the Madras High Court held that if a petition is

pending before the Court for the purpose of winding up, then the conditions of sec. 15A shall be

deemed to be have been complied with. In another case the Calcutta High Court held that the

aforesaid conditions under section 15A shall be deemed to have been complied with only if the

winding up order has been passed by Court.

Directions after investigation [section 16]

After investigation under section 15, if the Central Government is satisfied that action under section

16 is desirable, it may issue such directions to the industrial undertaking or undertakings as may be

appropriate in the circumstances.

Take-over

Section 18A empowers the Central Government to take over an industrial undertaking whose affairs

had been investigated under section 15.

Take-over after investigation [ Sec.18A]

Under Section 18A, the Central Government may, by notified order, authorize any person or body

of persons to take-over the management of the whole or any part of an industrial undertaking, if it is

the opinion that:

Such industrial undertaking, to which directions have been issued in pursuance of section 16,

has failed to comply with such directions; or

Such industrial undertaking is being managed in a manner highly detrimental to the

scheduled industry or to public interest.

Initially, the takeover of management will be for a period not exceeding 5 years. Subsequently,

extension can be granted for takeover for a period not exceeding 2 years at a time subject to the

condition that the total extension period does not exceed 12 years.

Effect of notified order : Section 18B provides the following effects of a notified order issued u/s

18A:

Vacation of office of all persons in-charge of the management.

Contracts in bad faith can be cancelled or varied.

No compensation to terminated directors.

Taking over charge by authorized person.

Protection to undertaking after takeover.


Take-over without investigation [Section 18AA] :

Under this section, the Central Government may, by notified order, authorize any person or body of

persons to take-over the management of the whole or any part of an industrial undertaking, if it is

satisfied that:

The person in-charge of such industrial undertaking have, by reckless investments or creation

of encumbrances on the assets of the industrial undertaking, or by diversion of funds, brought

about a situation which is likely to affect the production of articles; or

It has been closed for a period of not less than 3 months and such closure is prejudicial to the

concerned scheduled industry and it is in the interest of general public to re-start to industrial

undertaking.

Initially, the takeover of management will be for a period not exceeding 5 years. Subsequently,

extension can be granted for takeover for a period not exceeding 2 years at a time subject to the

condition that the total extension period does not exceed 12 years.

The power to takeover u/s 18AA without causing investigation does ot imply that the requirements

of the principle of natural justice, i.e. the opportunity of being heard need not be complied with. The

owner of undertaking is entitled to be heard before an order is passed u/s 18AA.

Take-over of Industrial Undertaking owned by Company in Liquidation [ Section 18FA]

After investigation u/s 15A, if the Central Government is satisfied that there are possibilities of

running or re-starting the industrial undertaking. It may make an application to the High Court for

permission for takeover. On such application, the High Court shall grant permission for takeover.

Thereafter, the Central Government may, by notified order, authorize any person or body of persons

to take-over the management of the whole or any part of an industrial undertaking, for a period not

exceeding 5 years.

Any extension beyond this period is granted upon an application made in this behalf by the Central

Government for a period not exceeding 2 years at a time subject to the condition that the total

extension period shall not exceed 12 years.

Liquidation or Reconstruction of Companies :

Section 18FC of the act confers powers on the Central Government to call upon the authorized

person to submit a report on the affairs and working of the industrial undertaking whose

management or control has been taken over u/s 18A, 18AA or 18FA.

Section 18FD deals with two alternatives available to the Central Government on receipt of the

report from the authorized person. The Central Government can either decide to sell the undertaking

as a running concern or it may decide to prepare a scheme for the reconstruction of the Company.

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